Weekly Recap: Crypto Winter Grows Colder; Trump Goes Prime-Time

Weeks of steady progress in the cryptocurrency market unraveled on Thursday, as bitcoin headed for its worst drop since November. Bitcoin’s quick and sudden collapse triggered a market-wide correction, with the likes of Ethereum, bitcoin cash and Litecoin heading for double-digit declines.

Stock markets traded in the opposite direction of cryptocurrencies thanks to renewed optimism that the United States and China will reach a new trade agreement. Both sides met for longer than expected this week, highlighting progress on a number of important issues.

Crypto Markets Crumble

The cryptocurrency market experienced a sharp and sudden pullback on Thursday after bitcoin plunged 5% in less than an hour. The leading digital currency continues to exert a gravitational pull on the broader market, which exposed assets like Ethereum, XRP, bitcoin cash and others to heavy selling pressure.

Prior to the selloff, bitcoin had successfully regained $4,000, leading the broader crypto market cap north of $138 billion. It has since fallen to $123.5 billion. There was no immediate catalyst for the drop, which likely means technical trading was the biggest factor.

Most major assets are headed for weekly losses, with Ethereum and bitcoin cash experiencing the biggest percentage drop. Tron is still on track for a weekly gain of around 26% after prices peaked at five-month highs earlier in the week. Read: Tron Surges to Five-Month High as BitTorrent Token Enters Circulation.

Ethereum Hard Fork

After nearly doubling in price over a three-week stretch, Ethereum dropped more than 14% on Thursday. As a result, ether dropped back to third spot in the crypto market ranking, with XRP returning to no. 2.

After Doubling in Price, Ethereum Faces Inevitable Correction Ahead of Big Upgrade

Ethereum had enjoyed strong momentum ahead of a highly-anticipated technical upgrade. Constantinople is scheduled to go live between Jan. 14-18, and will bring much needed upgrades to the network. The hard fork created a sense of urgency for investors and miners, who will see their block reward lowered to 2 ETH from the current rate of 3 ETH. The upgrade will be hardly noticeable to average users but is considered an essential component of the development road map, including future improvements to scalability.

Stock Recovery Deepens

U.S. stocks rose sharply this week, with the major indexes building on a recovery that began in earnest on Boxing Day. The S&P 500 Index is in the midst of its strongest two-week stretch since 2011, having rebounded 10% over that period.

Markets were propelled higher last Friday by better than expected nonfarm payrolls numbers. This week, positive developments around U.S.-China trade negotiations were among the biggest catalysts. Trade delegates from both countries met in Beijing this week, where they ironed out important details concerning U.S. commodity purchases and access to mainland China markets.

Investors are gearing up for a potentially volatile earnings season now that Apple has lowered its guidance on Q4 sales. Corporate reporting season will begin later this month.

Trump Goes Prime-Time

President Donald Trump delivered his first Oval Office address on Tuesday, where he urged Americans to support his fight for increased border protection. The president described the situation on the U.S.-Mexico border as a “humanitarian crisis” that needs to be resolved immediately. Read: President Trump Makes His Case for a Border Wall as Economy Hangs in the Balance.

Trump and congressional Democrats remain locked in a bitter dispute over a proposed border wall that will cost $6 billion. Democrats’ refusal to approve the funding has blocked a new budget from being formed and caused several government agencies to shut down. As many as 800,000 federal workers lost their first full paycheck on Friday as the impasse continued.

The latest talks between Trump and Democrats broke down on Wednesday after House Speaker Nancy Pelosi and Senate Minority Leader Chuck Schumer said they would refuse to grant wall funding even if government reopened.

The Week Ahead

The longest government shutdown in U.S. history will certainly have ramifications on Wall Street unless Democrats and Republicans are able to reach a solution shortly. There’s already signs that the federal shutdown is starting to make investors anxious, which could put additional pressure on the Trump administration to reach a compromise.

In cryptocurrencies, bitcoin will look to defend a critical support level over the weekend. Its ability to hold $3,500 could dictate whether the market enters full-blown capitulation mode or recovery. The hard fork of Ethereum will also be of interest to crypto traders looking to evaluate ether’s technical progress.

Disclaimer: The author owns bitcoin, Ethereum and other cryptocurrencies. He holds investment positions in the coins, but does not engage in short-term or day-trading.

Featured image courtesy of Shutterstock.

Chief Editor to Hacked.com and Contributor to CCN.com, Sam Bourgi has spent the past nine years focused on economics, markets and cryptocurrencies. His work has been featured in and cited by some of the world's leading newscasts, including Barron's, CBOE and Forbes. Avid crypto watchers and those with a libertarian persuasion can follow him on twitter at @hsbourgi